(2023)
What is included in private sales transactions?
The regulations governing which gains or losses are considered private sales transactions are outlined in Section 23 of the Income Tax Act. For tax purposes, they are classified as other income.
Specifically, the following transactions are considered private sales transactions:
- Sale of non-owner-occupied property within ten years
- Sale of other private assets within one year
Other assets include items such as gold bars, gold coins, foreign currency, or rented transport vehicles.
If you have earned income from these assets, the speculation period increases from one year to ten years. Gains or losses are not considered private sales transactions if they can be attributed to another type of income. The sale of securities and related speculative transactions are classified as income from capital assets, and the withholding tax applies.
Cryptocurrencies can also be subject to a private sales transaction according to Section 23 (1) No. 2 of the Income Tax Act. This means for transactions within private assets: capital gains from the exchange or re-exchange of Bitcoins, etc., into euros or another cryptocurrency are considered taxable speculative transactions if the purchase and exchange occur within one year. A gain is only tax-free if it is below the allowance of 600 Euro.
Federal Ministry of Finance and Cryptocurrencies
The Federal Ministry of Finance has explained the taxation of cryptocurrencies and digital tokens in a letter (BMF letter dated 10.5.2022, IV C 1 - S 2256/19/10003 :001). Here are the key points:
- Private sales transactions: If you buy and sell cryptocurrencies like Bitcoin or Ethereum within a year, profits may be taxable. They remain tax-free if they are under 600 Euro.
- Tax-free sale after one year: If you hold cryptocurrencies for more than one year, the sale is generally tax-free, even if you have used them for specific purposes such as lending or staking.
- Business assets: In some cases, cryptocurrencies may be considered business assets, especially if you trade them regularly and intensively.
- Commercial trading: If you repeatedly buy and sell cryptocurrencies, this may be considered a commercial activity.
- Block creation: The creation of blocks, whether through mining or forging, is not considered private asset management. This is regarded as a commercial activity.
- Business income: If cryptocurrencies are part of business assets, sales proceeds are treated as business income, regardless of the one-year period.
- Income from block creation: Income from block creation may be taxable unless it is below 256 Euro per year and no commercial activity is involved.
Federal Fiscal Court and Cryptocurrencies
The Federal Fiscal Court has ruled that capital gains from the sale of cryptocurrencies within one year are taxable (BFH ruling of 14.2.2023, IX R 3/22). This concerns a case where a claimant made a profit of 3.4 million Euro from trading cryptocurrencies. Cryptocurrencies are considered assets subject to taxation as private sales transactions. These regulations apply to digital currencies such as Bitcoin, Ethereum, and Monero. They are regarded as means of payment and can be traded on trading platforms.
